AstraZeneca Sells Molecule Antibiotics Unit to Pfizer

Pfizer agrees to buy three approved antibiotics and two drugs in clinical trials

a1Pharmaceutical major AstraZeneca PLC (NYSE: AZN) has agreed to sell its small molecule antibiotics business to drug behemoth Pfizer Inc. (NYSE: PFE) in a deal that could be valued at more than $1.5 billion. The U.K.-based AstraZeneca, which fended off a $120 billion takeover by Pfizer in May 2014 on grounds of undervaluation, said that the potential sale would allow it to channel funds for developing new medicines in its main areas of cancer, respiratory, and cardiovascular diseases. For Pfizer, the antibiotics gain from AstraZeneca would enhance its portfolio of more than 60 anti-infective and anti-fungal medicines, and bolster its stable of older products, some of which have lost patent protection in recent years and are facing associated competition from cheaper generics in the U.S. and global markets. Small-molecule antibiotics are generally made from traditional chemicals, while biologics are synthesized from living sources including plants.

The medicines included under the potential deal are approved antibiotics Merrem, Zinforo, and Zavicefta, as well as ATM-AVI and CXL, which are in clinical development, giving Pfizer the right to sell those drugs in most markets outside the U.S. and Canada. Under the terms of the deal, Pfizer will pay $550 million upon completion and a further $175 million in January 2019. Thereafter, depending on the progress and commercial success of Zavicefta and ATM-AVI in certain markets, Pfizer will pay a further $850 million in sales-related payments and royalties.

Source: Bloomberg
Source: Bloomberg

The two established medicines in the deal, Merrem, used to treat serious infections in hospitalized patients, and Zinforo, an intravenous antibiotic used for skin and soft tissue infections and pneumonia, generated sales of $250 million in 2015, according to AstraZeneca. The potential deal does not involve AstraZeneca’s portfolio of biological anti-infective drugs, or the business it spun out last year to focus on the development of early-stage antibiotics. The deal would not affect AstraZeneca’s guidance for FY16.

Pfizer to strengthen Essential Health segment

Pfizer said that the antibiotics gained through the potential AstraZeneca deal would strengthen its Essential Health segment, which sells older products including those that have lost patent protection. Pfizer already has a portfolio of more than 60 anti-infective and antifungal medicines under this segment. Although Pfizer’s Essential Health segment revenues grew a robust 19% in Q2 FY17, the segment suffered the loss of exclusivity and associated generic competition for certain Peri-LOE Products, primarily Zyvox in the U.S. and key markets as well as Lyrica in some Europe markets. Hence, the Company is looking at acquisitions as a means to replace revenue from drugs that have lost patent protection or are facing new competition.

a3In August 2012, Pfizer entered into an agreement with AstraZeneca for the over-the-counter (OTC) rights for NEXIUM (esomeprazole magnesium), a leading prescription drug currently approved to treat the symptoms of gastroesophageal reflux disease (GERD). Under the terms of the agreement, Pfizer acquired the exclusive global rights to market NEXIUM in the U.S., Europe, and the rest of the world.

Dearth for antibiotic R&D

Pfizer is one of several pharmaceutical companies to exit from antibiotic R&D in recent years, though it continues to sell older products. The pharmaceutical industry at large has witnessed a drastic fall in antibiotic research due to the low return on investment generated from such molecules. Any new class of antibiotics discovered would need to be used sparingly to conserve their effectiveness, which in turn translates into muted sales.

Source: Financial Times
Source: Financial Times

Governments around the world are now looking for ways to encourage large pharma companies to commence R&D in antibiotics to help address a global rise in antimicrobial resistance.

For AstraZeneca, the potential deal with Pfizer forms part of its plans to offload drugs that do not fall into its core therapy areas of cardiovascular and metabolic disease, oncology, and respiratory, inflammation and autoimmunity. In recent years, the loss of market exclusivity on some key products has had a negative impact on AstraZeneca’s revenues, which has launched a $1.1 billion cost-cutting plan to help the shift to a new generation of medicines, prompting the Company to generate funds through selling its non-core assets.

Stock Performance

a5AstraZeneca’s stock ended the day at $33.05, slipping 0.54%, at the close on Friday, August 26th, 2016, having vacillated between an intraday high of $33.45 and a low of $32.79 during the session. The stock’s trading volume was at 4,838,894 for the day. The Company’s market cap was at $83.86 billion as of Friday’s close.a6

Pfizer’s stock ended the day at $34.82, gaining 0.14%, at the close on Friday, August 26th, 2016, having vacillated between an intraday high of $35.10 and a low of $34.66 during the session. The stock’s trading volume was at 18,770,640 for the day. The Company’s market cap was at $211.29 billion as of Friday’s close.

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